The opinion of the court was delivered by: KALODNER
This is an action at law. Jury trial was waived and the case was heard before the Court on pleadings, stipulation of facts and proofs.
The plaintiff is Walter J. Rothensies, Collector of Internal Revenue for the First Collection District of Pennsylvania, to the use of the United States of America.
The defendants are Edwin J. Schoettle Company, a Pennsylvania corporation, and the Secretary of Banking of the Commonwealth of Pennsylvania, receiver of the now closed Central Trust and Savings Company.
The suit is on an abatement bond given by the defendant Schoettle as principal, and the Central Trust and Savings Company as surety, on May 4, 1923, to Blakely D. McCaughn, (then) Collector of Internal Revenue for the First Collection District of Pennsylvania. The abatement bond was given to satisfy the collection of an assessment by the Commissioner of Internal Revenue of $33,786.67 additional income and excess profit taxes for the year 1917 against the defendant Schoettle. The additional assessment was made in March, 1923. Following the assessment demand was made for payment by the then Collector of Internal Revenue McCaughn. To avoid distraint proceedings for the collection of the tax, the defendant Schoettle, after filing a claim for abatement, entered its bond with the then Collector, conditioned for the payment of the tax after consideration of the claim for abatement. The Central Trust and Savings Company, now in possession of the Secretary of Banking of the Commonwealth of Pennsylvania, signed the bond as surety.
After consideration of the claim for abatement, the Commissioner of Internal Revenue abated a portion of the tax and reduced the assessment from $33,786.97 to $19,991.60. As against this action of the Commissioner, the defendant Schoettle filed a protest claiming that no tax was due. After consideration of the protest, the Commissioner denied it. Thereafter, upon creation of the U.S. Board of Tax Appeals, an appeal was filed to the said Board. The Board of Tax Appeals in its decision reported in Edwin J. Schoettle Co. v. Com'r, 13 B.T.A. 950, considered only the question of the Statute of Limitations with respect to the collection of the tax, and after limiting its opinion to that one point (based upon stipulation of counsel), found that judgment should be entered in the proceedings before it for the defendant. The Board did not pass upon the merits of the tax claim.
Subsequently, this action was brought by Rothensies, the incumbent Collector of Internal Revenue, to the use of the United States, upon the bond given at the time the claim for abatement was filed, on the theory that the bond constituted a separate cause of action and that the defendant was liable thereon, irrespective of the fact that the Statute of Limitations then barred any action directly for the collection of the tax claim.
Several defenses are raised by the defendants with respect to this action. The defenses may be summarized as follows:
(2) That the bond was executed under a mutual mistake of law;
(3) That the bond was given under duress;
(4) That the condition of the bond has been satisfied by the application of a partial credit by the Collector, on account of taxes for a subsequent year.
Separate additional defenses on behalf of the surety will be referred to later.
After consideration of the various defenses raised, and a study of the record, I am convinced that judgment must be entered for the plaintiff against both defendants, and that the defendant Schoettle's motion for summary judgment must be and is hereby denied.
As to the first mentioned of the defenses that Rothensies is not the proper plaintiff:
The bond, which is the basis for this action, names as obligee "Blakely D. McCaughn, Collector, First District, Pennsylvania." The bond recites the fact that there has been an assessment of income tax and excess profits tax for the year 1917 by "the Collector of Internal Revenue for the 1st Dist. of Penna." The condition of the bond is that "if the principal shall on notice and demand by the Collector duly pay any part of such tax found by the Commissioner to be due * * * then this obligation is to be void * * *."
McCaughn ceased to be Collector for the First District of Pennsylvania on December 31, 1927. At the time this action was commenced (December, 1935) there had already been several successors to the office of Collector for the First District of Pennsylvania, and the incumbent in office was Rothensies.
The defendant Schoettle contends that since this action is brought upon an instrument under seal that the strict common law rule applies that only one who is a party to a contract under seal may sue thereon and that consequently only McCaughn, the obligee, could bring this suit.
Counsel for defendants refers to the case of Greene County for use of, v. Southern Surety Company, 292 Pa. 304, 141 A. 27.See, however, later cases of the Pennsylvania Supreme and Superior Courts, such as Concrete Products Company v. United States Fidelity and Guaranty Company, 310 Pa. 158, 165 A. 492; Commonwealth v. Great American Indemnity Company, 312 Pa. 183, 192, 167 ...